UPDATE 3-G7 willing to step up sanctions on Russia over Ukraine
* G7 delivers Putin ultimatum: stabilise east Ukraine or more sanctions
* Leading industrial powers meeting in Brussels without Russia
* Two-day summit to discuss foreign policy, economics, energy
* Russia dropped from G8 talks after seizure of Crimea (Releads with quotes from Merkel, G7 statement)
By Luke Baker and Mike Peacock
BRUSSELS, June 4 (Reuters) - The world's leading industrialised nations threatened on Wednesday to impose harder-hitting sanctions on Russia if it does not help restore stability to eastern Ukraine, where pro-Russian militias continue to operate at will.
While Ukraine was able to hold a largely peaceful presidential election last month, the situation in the east near the Russian border remains volatile, with armed groups attacking Ukrainian government forces and occupying state buildings.
"We stand ready to intensify targeted sanctions and to consider significant additional restrictive measures to impose further costs on Russia should events so require," the G7 said in a statement after evening talks in Brussels.
German Chancellor Angela Merkel said Western powers would check "again and again" to verify that Russia was doing what it could to stabilise the situation, which erupted in March after Russia seized Crimea from Ukraine and annexed it. Continued...